Wednesday, April 06, 2011
By Dan Schulte, J.D.
MDA Legal Counsel
From the April 2011 issue of the Journal
Question: More and more I am seeing dental practices becoming part of large "chains" operated by dental management companies. I even read recently that a private equity firm now owns Great Expressions Dental Centers. I thought dental practices had to be owned by dentists. How can this be legal?
Answer: You are correct that in Michigan only licensed dentists can own a dental practice (i.e., a professional corporation or professional limited liability company in the business of providing dental services). Section 4(3) of the Professional Service Corporation Act states that if a professional corporation is organized to provide a professional service that is subject to Michigan’s Public Health Code (including dentistry) then all of the professional corporation’s shareholders must be "licensed or legally authorized" in Michigan to provide that same professional service (dentistry).
A similar restriction is contained in Section 904(2) of Michigan’s Limited Liability Company Act. These restrictions in Michigan’s Professional Service Corporation Act and Limited Liability Company Act exist as a result of the Corporate Practice of Medicine Doctrine. This doctrine, existing in Michigan and many other states for decades, has always prohibited a general business corporation or a limited liability company from being organized for the purpose of providing dentistry and other regulated medical services. The purpose of the doctrine (and the statutory restrictions) is to ensure that the delivery of dental, medical and other regulated health services be controlled by licensed professionals and not lay persons with a profit motive.
There are two exceptions that would allow someone who is not licensed to practice dentistry to own a dental practice. The first is when the dental practice is organized as a non-profit corporation. The second is when the practice is organized as either a general partnership or limited liability partnership. Hospitals are very often organized as non-profit corporations; this enables them to employ physicians, nurses and other licensed professionals. The prohibition on a profit motive, however, makes operating as a non-profit impractical for most dental practices (unless operated as a charity care clinic).
Likewise, the practice of dentistry through a partnership is rare in Michigan due to liability and other considerations. There are ethical and licensing implications that would also make it difficult for a dentist to share ownership in a partnership with someone not licensed to practice dentistry.
Despite being prohibited from doing so legally, you cite examples of what appears to be the large-scale ownership of dental practices in Michigan by non-dentists. Things are not always as they appear, however.
Although they are sometimes portrayed as "purchasing" and/or "operating" a dental practice, rarely do dental management companies do so. Instead, in these arrangements a dental management company, private equity firm, or other "investor" type entity purchases the assets of the dental practice except for the patient records. In addition to owning the real estate, equipment, supplies, etc., the investor will often also contract to provide management, billing and other administrating services with the dentist, who remains the owner of a professional corporation or professional limited liability company.
The dentist either individually or through his/her PC or PLLC remains the owner of the dental records and provides dental services, paying the management company or other investor rent for the real estate and equipment and fees for the management, administrative and billing services. The difference between what is billed and collected for the dental services and the rent and fees is the profit left for the dentist. This arrangement is legal so long as the dental services are being provided by a licensed dentist individually or through his or her professional corporation or professional limited liability company. The reality often is that the management company or investor is really a landlord, lessor and/or independent contractor providing management, administrative and billing services to a dental practice.